NEW YORK: Chairman Ben Bernanke moved the Federal Reserve further into uncharted policy territory in combating joblessness by tying the bank's interest-rate outlook to unemployment and inflation, while committing to an even faster expansion of the central bank's balance sheet.

The actions on the eve of the Fed's centenary year underscore Bernanke's hallmark commitment to experimentation and forceful action, derived in part from his research showing too little monetary stimulus produced large economic costs for the US in the 1930s and for Japan in the 1990s.

He called the current state of the labor market, with unemployment at 7.7 per cent, "an enormous waste of human and economic potential" and said the benefits of more bond buying outweigh the potential risks.

"Bernanke is pulling out all the stops to kick this economy back into a higher gear," said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi in New York. "They are buying everything in sight— Treasuries, mortgage- backed securities — and will keep rates low until everyone who wants a job has one."

Central bankers for the first time linked their interestrate outlook to economic thresholds, saying rates will stay low "at least as long" as unemployment remains above 6.5 per cent and if the Fed projects inflation of no more than 2.5 per cent one or two years in the future. Fed officials don't see joblessness falling near that goal until 2015.

The adoption of thresholds was urged in September 2011 by Charles Evans, president of the Chicago Fed, who said the central bank should "add very significant amounts of policy accommodation" to bring down unemployment, even at the risk of a temporary increase in inflation. A year later, the idea was backed by President Narayana Kocherlakota of Minneapolis, who had earlier criticised the Fed's easing policies.

Fed vice-chairman Janet Yellen and the Boston Fed's Eric Rosengren last month backed the concept. In a November 27 speech, Evans spelled out the numerical benchmarks that were adopted on Wednesday.

HOME SEIZURES, RETAIL SALES RISE

Home seizures in the US rose 5.4 per cent last month, the first annual gain in two years, as lenders seek to manage the flow of distressed properties without disrupting the housing recovery. Banks repossessed 59,134 homes, up from 56,124 from November 2011.

The increase was the first since October 2010. Retail sales in the US probably climbed in November on rebounding demand for automobiles. The projected 0.5 per cent gain would follow a 0.3 per cent drop in October. Jobless claims fall to 343,000 in latest week.

'ALL IN'

"The Fed is all in," said Diane Swonk, chief economist for Mesirow Financial Holdings in Chicago. "They are absolutely committed to averting the mistakes of the Japanese and of the Great Depression. They will not stop too soon. He is willing to take the risk of unintended consequences."

US stocks erased gains as optimism about the Fed's additional asset purchases faded and investors focused on the budget deadlock in Washington.

The Standard & Poor's 500 Index closed up less than 0.1 per cent at 1,428.48 in New York, after earlier climbing as much as 0.8 per cent.